Ken Houston: Glasgow’s floorspace challenge
While attractive packages are still available to tenants on a range of properties, particularly the very competitive smaller buildings market, there are growing signs of a big reduction in incentives on large new-build and refurbished floorplates as supply just about stays ahead of demand.
According to Jones Lang La Salle, a surge of activity in the last quarter of 2014 year meant the number of office deals in the city centre rose by over 30 per cent on the previous year.
Some of this may be accounted for by a hive of activity after the Referendum result in September which was generally welcomed by business interests. Now there is a feeling that movement may stall until the result of the General Election is known – but that is just over three months away and experts are confident that, whatever the outcome, more big deals are on the cards. All that new and refurbished space about to come onto the market wasn’t sanctioned on a wing and a prayer!
According to Alistair Reid, director for JLL in Glasgow, “supply has again constricted and has dropped below the 10 per cent vacancy rate. We expect this figure to tighten in Q1 of 2015 until the new-build Grade A office developments come to market in the middle of the year.”
Ewan Cameron of Ryden agrees. He said: “Intending occupiers will find choice is rapidly reducing as the best space within new city centre developments and higher quality refurbishments is taken up. Floorplates of around 10,000 sq ft are already in short supply and options are even more limited on floors of 15,000 sq ft.”
Therefore those behind the three large speculative new-build developments must be entering the final phase (completions are expected between spring and autumn) with some confidence.
The three schemes are: 110 Queen Street,143,000 sq ft; 1 West Regent Street,143,000 sq ft; and St Vincent Plaza,170,000 sq ft. Queen Street is already circa 40 per cent let, Brodies ad Deloitte being among the forthcoming occupiers with a similar level at 1 West Regent .
St Vincent Plaza (left) is still to bag its first tenant. Unlike the other two, it is located at the extreme west end of the city centre office core (adjacent to the M8). However Cameron, who is agent for the building, claims this has one big advantage: the topography of the site means car parking is being provided without the need for a basement and the subsequent reduction in construction costs has resulted in a headline rent of £23 a sq ft, which is about a fiver lower than the rate for similar new grade A space.
Also, the presence of the pre-let Scottish Power HQ building, directly opposite and due for completion later this year, will give an abstract boost to St Vincent Plaza’s credentials.
The combination of anticipated demand and the diminishing supply of large floorplates, has encouraged landlords to carry out major refurbishments as well – e.g. at 123 St Vincent Street (owned by Avivia) to provide 45,000 sq ft in floors of around 15,000 sq ft. Another is Tay House, Charing Cross (Credential Holdings) where one of the refurbished floors will be as large as 30,000 sq ft – big enough to accommodate plenty of staff during the day and, perhaps, to stage a game of five-a-sides after work.